Month: June 2012
CLT – OCBC
IN THE RIGHT DIRECTION
•On track to deliver solid results
•May benefit from lower interest costs
•Offers attractive FY12F DPU yield
Expecting sturdy FY12 performance
Cache Logistics Trust (CACHE) appears to be on track to deliver a sturdy set of results for FY12. In addition to strong and predictable income streams from its existing portfolio properties, the REIT had announced two new acquisitions YTD that are expected to contributive positively to its financial performance. We note that the acquisition of Pan Asia Logistics Centre, announced in Jan, was completed on 30 Apr and is expected to give an initial NPI yield of 7.7%. On 7 May, CACHE proposed a sizeable acquisition of Pandan Logistics Hub from its sponsor CWT Limited at S$66m (~8.5% of total asset valuation as at 31 Dec 2011). This property incorporates a 2.5% annual rental escalation and has an initial NPI yield of 7.6%, based on details on the master lease arrangement with CWT. As the implied portfolio NPI yield stood at 7.3% for FY11, both acquisitions are expected to be accretive to its earnings.
Possibility of lower borrowing costs
We also observe that CACHE had announced the redemption of its S$35m 3.5% fixed rate notes due 2016 on 31 May. This is somewhat unexpected in our view, as the date of maturity is still four years away and as CACHE clearly need the capital for growth. This leads us to believe that CACHE may be in the process of injecting new capital via borrowings at more favourable terms (equity issue is probably an unlikely scenario at this juncture given its comfortable aggregate leverage of 27.7% as at 31 Mar). Should this turn out to be true, we expect CACHE to benefit from interest savings.
Maintain BUY
We continue to like CACHE for its resilient portfolio (100% occupied; master lease arrangements), long WALE of 4.4 years and attractive FY12F DPU yield of 8.1%. We are currently holding off adjusting our estimates for the Pandan Logistics Hub acquisition as it is still subject to unitholders’ approval on 19 Jun. Maintain BUY with unchanged fair value of S$1.11.
A-Reit – Maybank Kim Eng
Ascendas REIT (A-REIT) has recently entered into a put and call option
agreement with Chasen Holdings for the sale of 6 Pioneer Walk (Goldin
Logistics Hub) for SGD32m
We raise our FY3/13F DPU by 2.2% in view of the divestment gains (assumed
paid out) but lower our FY3/14F-15F DPU by 0.6% pa. We expect FY3/14F-15F
gross revenue to decline by 0.3% pa due to the loss of rental income.
Based on our forecasts, business/science parks currently constitute 40% of
our FY12F GAV, followed by hi-tech (23%), logistics and distribution (19%),
light industrial (15%) and warehouse retail facilities (3%). Potential
acquisitions overseas could provide further upside for DPU growth.
Importantly, A-REIT is also less vulnerable to asset erosion, with its
defensive properties located primarily in Singapore. The stock currently
trades at 6.7% FY3/13F yield and 1.1x P/BV. Reiterate BUY with a
DDM-derived target price unchanged at SGD2.23.
A-REIT – Kim Eng
Capital Recycling Kicks Off
Goldin Logistics Hub sold for SGD32m. Ascendas REIT (A-REIT) recently entered into a put and call option agreement with Chasen Holdings for the sale of Goldin Logistics Hub for SGD32m (~SGD148 psf on GFA basis). This marks its first divestment in 9.5 years since listing and represents a 42.2% premium over the original purchase price of SGD22.5m in 2007 and a 33.3% premium over the last valuation of SGD24m as at 31 Mar 2012.
Targeting end-June completion. The hub is located at 6 Pioneer Walk within the Jurong Industrial Estate and has a remaining land tenure of about 24 years. It is a two-storey warehouse with a ramp-up driveway and a four-storey ancillary office, as well as a single-storey workshop and a container yard with a gross floor area of 216,300 sq ft (less than 0.8% of portfolio GFA). The transaction is subject to JTC’s approval and is expected to be completed by end-June 2012. The existing lease will expire in Dec 2017 and will be assigned to Chasen upon completion of the sale.
Adjustments to our estimates. We raise our FY3/13F DPU by 2.2% in view of the divestment gains (assumed paid out) but lower our FY3/14F-15F DPU by 0.6% pa. We expect FY3/14F-15F gross revenue to decline by 0.3% pa due to the loss of rental income. Following this sale, A-REIT will now own 100 properties in Singapore and one business park in China.
Conviction BUY among industrial REITs. We continue to like A-REIT for its stable DPU yield, healthy lease expiry and debt maturity profile, underpinned by a diverse portfolio (business/science parks, hi-tech industrials, flatted factories, light industrials, logistics and distribution centres and warehouse retail). Based on our forecasts, business/science parks currently constitute 40% of our FY12F GAV, followed by hi-tech (23%), logistics and distribution (19%), light industrial (15%) and warehouse retail facilities (3%). Potential acquisitions overseas could provide further upside for DPU growth. Importantly, A-REIT is also less vulnerable to asset erosion, with its
defensive properties located primarily in Singapore. The stock currently trades at 6.8% FY3/13F yield and 1.1x P/BV. Reiterate BUY with a DDM-derived target price unchanged at SGD2.23.
CDL H-Trust – OCBC
SINGAPORE ROOM RATES CAN GROW SUBSTANTIALLY
•Are Singapore room rates steep?
•Rates have room to grow
•More LCC visitors
How expensive are Singapore room rates?
On a worldwide basis, Singapore commands fairly high hotel room rates. To study the relative affordability of Singapore hotels we have examined the average hotel room rates paid by travelers from different places of origin to destinations worldwide. Travelers from China, India, Australia, HK and the UK, which form half of the top ten places of origin for travelers to Singapore in 2011, are willing to pay 24-61% more for a hotel room in the most expensive destinations versus Singapore. For example, travelers from China paid an average of 40% more for a hotel room in London in 2011 versus one in Singapore.
Rates can continue rising
As Singapore continues to become a more attractive travel destination, especially for its trio of MICE, gaming and medical tourism, the premium that the most expensive hotel destinations command over it could shrink substantially with time. Additionally, the nine out of 10 top places of origin for visitors to Singapore are located in Asia-Pacific. With the continued rise of low-cost carriers (LCCs) in this region, intra-Asia travel will increase and people can afford to spend more on hotel rooms. For many, traveling to Singapore is already a lot cheaper than travelling to New York or Venice.
Welcoming long-haul LCC visitors
Singapore’s first long-haul low cost carrier (LCC), Scoot, will be making daily flights to Tokyo and Taipei from 3Q12. Scoot just completed its maiden flight to Australia and will begin flights to Gold Coast next week. The supply-demand dynamics for Singapore hotels remains positive. We project that hotel room supply will increase by 3.7% p.a. for 2012-2015 while hotel room demand will grow faster at 6.4% p.a.
Maintain BUY
CDLHT is one of the few highly liquid, close-to-pure-plays for the Singapore hotel sector. We maintain our BUY rating on CDLHT and our RNAV-derived fair value estimate of S$2.04.
StarHill Global – DBSV
Great Singapore Sale starts here
• Higher contribution from Wisma Atria in the 2H and upward rental reversion from Malaysia master tenant lease to boost DPU by at least 8%
• No overhang from CPU with minimal dilution of 0.4 -1.2%
• Maintain BUY, TP raised to S$0.75
Strong portfolio performance. Occupancies for Starhill Global REIT’s (SGReit) Singapore office portfolio are back to pre-crisis levels, while Chengdu property’s revenue should improve in 2H with the refreshed tenant mix. More importantly, we see visible growth catalysts coming from: (1) Wisma Atria, as the AEI works complete in 3Q12. About 20% of the mall’s NLA is expected to enjoy close to 50% increase in rents post AEI works. Rental revenue to rise in 2H12 as all the stores that are part of the AEI works including Cortina, Coach and Tory Burch flagship stores have opened. (2) Upward rental reversion of its Malaysia master lease which constitutes 17% of its gross revenue and is due for a 7% rental hike next year. Meanwhile, earnings upside could come from one-off accumulated arrears in rents from Toshin’s lease, if any, which we have yet to factor into our numbers. (3)
Longer term, the possible divestment of its Japanese properties could help to unlock values.
Strong balance sheet with no overhang from CPU. Balance sheet remains strong with gearing at 30% and no major refinancing due this year. In addition, we see limited downside risk from the convertible preferred units (CPU), with dilution estimated at c.0.4% to 1.2% to FY13-14 DPU assuming full conversion.
Compelling valuations with total return of 26%. We see strong organic growth outlook for SGReit’s portfolio, backed by stable income derived from master tenants. SGReit stands out for its compelling valuation of 0.7x P/NAV and attractive FY12/13F yields of 6.7-7.2% in the small mid cap REIT space. We have raised our DCF-backed TP by 5.6%and FY12/13 DPU slightly to account for Wisma Atria’s stronger performance. Our revised TP offers investors a total return of 26%.